Expansion of the EITC solves inequality better and costs less.

Yang’s “Freedom Dividend” would provide $12,000 per year to every adult citizen. (Yang 2020, 2020). This program would cost an estimated $2.8 trillion per year (Pomerleau, 2019). Yang suggested that the Freedom Dividend could be funded through a combination of spending cuts, tax increases, and new taxes (a flat consumption tax on what would be deemed luxury consumable goods), and expected economic growth from the program, which could in turn generate additional tax revenue. The Yang proposal imposed a choice for taxpayers between receiving the basic income or certain other existing social support benefits.

In addition to requiring reductions to other safety net programs, this form of a UBI program presents additional possible concerns. Offering everyone in the economy the exact same amount dilutes the purchasing power of those at the low end of the income distribution (as compared to a more targeted program), and, it may enhance wealth disparity given that consumers with higher incomes would better be able to save or invest their additional disposable incomes, while consumers with lower incomes are more likely to consume the additional disposable income. This issue could potentially be mitigated if the grant were financed through a substantial increase in progressive federal income taxes disproportionately borne by taxpayers with higher incomes.

Negative Income Tax

A negative income tax (NIT) typically provides a transfer amount ensuring a basic level of economic support through the tax system, which phases out for beneficiaries with higher earnings. The phase-out results in an implicit tax on income earned in the phase-out range, which can also be understood as a partial funding source for the transfer. NIT proposals all share this basic feature, but vary in their level of support, method of implementation, phase-out schedule, and interaction with other transfer programs.

Policymakers and scholars from varied ideological perspectives have advocated for negative income tax proposals and related reforms. In the early 1960s, Nobel laureate neoclassical economist Milton Friedman proposed a negative income tax with a similarly small transfer amount designed to alleviate extreme poverty, through a $600 deduction level which phased out at a 50 percent rate for each dollar of income earned by the beneficiary, for a maximum subsidy for an individual of $300, which certainly would not be sufficient to cover subsistence (Friedman, 1962). Friedman generally opposed a broad social safety net and envisioned this system as an “efficient means” of offering minimal redistribution through cash support, which would be bundled with eliminating other in-kind government transfers and programs (Glogower & Wallace, 2018).

In 1969, President Nixon introduced his “Family Assistance Plan” soon after taking office, which was influenced in part by Friedman’s proposal. This program would have provided a “low income allowance” roughly based on the poverty levels for different households, which would phase out gradually at a rate of 50 percent for beneficiaries with income above the poverty level (Moynihan, 1973).

President Nixon’s program would have provided a benefit of $500 per year for each of the first two family members, and $300 for each additional member, for a maximum benefit of $1,600 for a family of four. This amount was equal to approximately 43 percent of the federal poverty threshold at the time (SSA, 2019) and would be equivalent to an inflation-adjusted transfer of approximately $11,000 today. The House of Representatives passed a modified version of the bill in 1970, but the plan failed to pass in the Senate (The Family Assistance Plan, 1972).

In the 1960s, futurist Robert Theobald also proposed a universal cash transfer program which similarly phased out with a taxpayer’s earnings (Theobald, 1963; Theobald, 1967). Theobald proposed a “Basic Economic Security” program providing a maximum subsidy of $3,200 for a family of four (approximately equal to the FPL at the time), which phased out at a rapid rate of 90 percent of beneficiaries’ earned income. Theobald’s ideological motivations for his proposal differed from Friedman’s. Theobald justified his transfer program as a necessary measure to preserve human freedom and dignity in the face of economic changes and insecurity. Echoing Paine, Theobald also understood economic security as a fundamental right (Glogower & Wallace, 2018).

More recently, Representative Rashida Tlaib (D-MI) proposed a comparable variant of a negative income tax program, designed to provide a limited transfer to low-income beneficiaries, which similarly phases out with the beneficiaries’ income. Tlaib’s proposed “BOOST Act” would provide a maximum grant of up to $3,000 for individuals and $6,000 for families, payable monthly and structured as a refundable credit which phases out with the beneficiary’s income. The transfer would phase out entirely for single filers earning $50,000 and families earning $100,000 (BOOST Act, 2019). Filers with no income are also eligible for the credit. Analysts estimate that the BOOST Act could cost approximately $380 billion per year (ITEP, 2019).

Earned Income Tax Credit

Nixon’s Family Assistance Plan eventually evolved into the EITC. The EITC is a refundable tax credit designed to supplement the earnings of workers with lower incomes, excluding non-wage earners. The amount of the credit varies with the recipient’s filing status, income level, and number of dependent children. For 2020, a family with three or more children can receive a maximum EITC credit of $6,660.

The EITC phases in at the lowest income levels. A taxpayer with no earned income will not receive any benefit, and the amount of the credit will increase with the taxpayer’s income within the phase-in range. The EITC also phases out at higher income levels. Both the phase-in and phase-out ranges depend upon the taxpayer’s filing status and number of dependent children. For example, in 2020, the credit phases out entirely for a family with more than two children and income of $56,844, or for a head of household with more than two children and income of $50,594. The Joint Committee on Taxation estimates that (on a static basis) the EITC cost approximately $70 billion in 2019 (JCT, 2019).

The EITC only benefits wage earners and provides only a limited degree of economic support to taxpayers with lower income, with a design intended to incentivize participation in the workforce by beneficiaries with low incomes (CBPP, 2019; Eissa & Liebman, 1996). Eissa and Hoynes (2006) find that the EITC does not significantly reduce the hours worked by earners within the phase-out range, notwithstanding the higher implicit tax rates on this income resulting from the phase-out.

The EITC provides a larger benefit to families with dependent children, and for this reason has a significant impact in lifting families with children out of poverty (CBPP, 2019). The larger benefit for workers with dependent children also enables these recipients to participate in the workforce by defraying additional costs such as childcare (Eissa & Hoynes, 2006). Finally, studies have found that the EITC has helped to advance racial equity, by benefiting economically disadvantaged groups, as compared to a baseline of the current tax system absent the EITC (CBPP, 2019; Huang & Taylor, 2019).

Despite these advantages, the EITC does not operate as a comprehensive economic support program. Individuals with no children receive a much smaller credit. For 2020, a taxpayer with no qualifying children receives a maximum credit of only $538. Individuals who do not (and possibly cannot) earn wages do not receive any benefit, and earners with very low incomes within the phase-in range receive a reduced benefit. Finally, even the maximum allowable benefit under the EITC may be sufficient to lift wage earning families out of extreme poverty but does not provide economic support above this minimal level.

Our Guaranteed Income Proposal

Our guaranteed income program dramatically expands the structure of the EITC to guarantee income, eliminate poverty, and lift more families into the middle class. Under these terms, a maximum refund lifts a household earning $0 up to the level of the poverty line, with a gradual phase-down beginning for households with income above $10,000 or $15,000 (for single-adult households and two-adult households, respectively), until phasing out at approximately the national median household income, at $50,000 or $70,000, respectively. Every individual adult is qualified to receive annual monetary support of up to $12,500, regardless of their household composition or filing status. Families with children will also receive an additional grant for every child.

This program would provide a substantial level of economic support to Americans who need it most:

The program eliminates poverty: every individual is guaranteed an income above the federally-defined poverty line.

Every household will also receive an additional support of up to $4,500 per child.

The support would be provided in monthly installments unless the taxpayer opts for a lump sum grant when they file taxes for the year.

The program does not require individuals to earn income in order to qualify.

The support phases out entirely for households with an adjusted gross income of $50,000 (for singleadult households) or $70,000 (for two-adult households). This structure would benefit both wage-earning and non-wage-earning households living in poverty and lift more families to the middle class.

Designed to supplement, not replace, the existing social safety net.

We estimate that the total cost of our program would be approximately $876 billion per year. This dramatic transformation of our fiscal system would require new sources of revenue, additional borrowing, or trade-offs with other government funding priorities. At the same time, this program would cost significantly less than other basic programs proposed by policymakers and academics because of its targeted nature with an income phase out at the median. Moreover, by targeting the poorest households, we may further induce multiplicative economic effects as the lowest-earning households are likely to utilize this cash for immediate consumption. Indeed, the poorest households will almost certainly spend a significant proportion of the guaranteed income funds in order to meet immediate basic needs.

This program is designed to supplement and bolster the existing social safety net and should not be thought of as a replacement for other in-kind government support programs. While many of our existing social supports help to address specific essential needs, unconditional cash grants provide families with the opportunity to take care of urgent needs or emergencies of any kind, or to invest in their careers or their families. This maintenance of other social safety net programs helps to ensure that our program enables individual progress and wealth building, and bolsters support for those in need and who have historically been excluded from economic opportunity.

A guaranteed income alone does not offer a complete solution to the challenges of economic insecurity, and it certainly cannot independently ensure racial, gender, and economic justice. There are many structural barriers that remain in place. However, a guaranteed income program—combined with an expanded social safety net—can help stabilize families and lead to more resilient communities in the wake of increasing economic vulnerability.